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When you inherit money or property, the odds are good that you won't have to pay inheritance tax on it. Only a handful states impose an inheritance tax, so unless you or the deceased live in one of those states, or you inherit property there, there's no tax. If you inherit a payable-on-death account, you can bypass probate but it doesn't help you dodge any inheritance taxes that are due.
Payable-on-death accounts are exactly what they sound like. The account owner names you as the beneficiary for her bank account or CD. As soon as you present the bank with proof of her death, you become the new owner. There's no limit to how much money the deceased can leave to you this way. If the money is considered community property, though, the deceased's spouse may be able to claim half of it.
As of 2013, Indiana, Iowa, Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania impose an inheritance tax. Outside of those states, you're off the hook. What's more, even in these states there's no tax if you inherit the POD account or other assets from your spouse. Some states also exempt the deceased's children from inheritance tax, or only require a minimum payment. The more distant your relationship, the more you pay: if a good friend names you on his POD account, you pay the full tax.
Inheriting a POD doesn't exempt the account from estate tax, either. For the vast majority of Americans, though, that's not an issue: as of 2013, only estates worth more than $5.25 million pay estate tax. And even if the deceased had that much money, it's the estate that has to pay the bill, not you. However, the executor can legally tap your inheritance to pay the tax, or the deceased's other assets, if necessary.
POD accounts speed up inheritance, but they can also making passing on property more complicated. For example, if the deceased draws up a will, but has named you or your siblings as beneficiaries of a POD account, that trumps the wishes in the will. It's also important to keep your beneficiaries up to date -- if a beneficiary predeceases the account owner, the owner should name a new one, or the account may end up going through probate after all.